Would full privatisation of Telstra help?

John Quiggin this week reiterated his long-standing proposition that Telstra’s structure be changed and it be selectively privatised. This is a view I agree with (see my earlier post).

New Zealand’s Telecom NZ is fully privatised. A report today suggests that it may be forced into the type of separation that we would want to see for Telstra. The report also suggests that this would be easier to achieve in New Zealand rather than Australia because the government has no stake in the company.

It seems to me that there is a grain of truth to this statement but only if holding on to the local copper loop is a means of leveraging power into other segments. That is, it has to be the case that separation would reduce the entity’s value.

But if we are to believe Telstra, it makes no money off its local loop (being strangled by regulation and all). In this case, separating it and privatising the rest would get the government more money than keeping Telstra together. So what is it? Is Telstra using its local loop monopoly to profitably leverage its market power into other segments or is the government being silly not separating out the loss-making parts of Telstra prior to privatisation?

Of course, even if separation would reduce profits, then if there is fear that the government might do a NZ and separate it later on, investors would build that in. So, separating it now cannot reduce the government’s privatisation take at all and so the Quiggin proposal makes absolute sense.

One thought on “Would full privatisation of Telstra help?”

  1. I agree. I think the seperation would highlight the cost of servicing the Bush as well, and whilst I agree that a “universal” service is needed, the cost of this should be more transparent. This would create a proper debate about the extent of rural subsidies in services from a position of market knowledge and cost. Whilst this may indicate to the public a real choice, the urban public in my view would still be supportive of the subsidies they pay: but the Nats would never accept that??

    I think an most important thing is too avoid a RailTrack scenario – where the network gets privatised and under invested in.

    I’d suggest a real issue all round is – what extent is the network reliant on cables going forward – will the Bush be better serviced by mobile and satelite services, etc, etc.

    What is the technology of the future for both media,internet and telephone services – I’m not sure??


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